Toying with regulators-(02.03.03)

The fine on Argos and Littlewoods for price-fixing deals with the toy maker Hasbro is real evidence in the long heralded toughening up of the regulatory regime in the consumers interest. In economics terms the leniency towards the instigator of the deals, Hasbro, can be seen as a classic piece of game theory. If regulation can ensure that there is an incentive for cartel members to rat on each otehr first then uncovering them becomes a whole lot easier. Apart from anything else it avoids competition authorities having to over regulate markets to test whether it is likely there are any dodgy practices going on.

One acqusation could be however that having such a big whistleblower incentive only identifies the easier to prove cartels. For more complex anti-competitive behaviour it is unlikely that anyone involved would take the risk of coming forward, unless they could be certain that the evidence would be enough for the competition authorities to win the case. For instance, many small retailers have for years complained about Hasbro in terms of threatening non-supply without price and store positioning guarantees, making it almost impossible for small toy retailers to compete with the big boys in thee market.

Perhaps this uncertain first mover incentive will become even weaker with the Enterprise Act comes into force this year. Once criminal penalties and jail for directors is a possibility, even with the OFT being able to offer immunity from prosecution there may be less cartel members willing to take the risk.

I'm sure that John Vickers at the OFT will have these angles covered. He considered most of these issue when he wrote the seminal text books on competition and markets in the 1980's.